The 5 Most Important Steps of Commercial Real Estate Escrow

15 Dec 2017

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The 5 Most Important Steps of Commercial Real Estate Escrow

Residential real estate is often difficult to grasp, so it’s understandable that commercial real estate is also viewed as a complex process. One of the most important aspects of both types of real estate is the escrow process.

Escrow is the process where a neutral third party holds funds while the buyer and seller meet the various aspects of an escrow agreement. It offers all parties financial protection during the sale of property, as funds are withheld should either party fail to meet the requirements of the escrow agreement.

Let’s take a closer look at the 5 most important steps of commercial real estate escrow:

1. Deciding the Terms of Escrow Agreement

The first and most important step of commercial real estate escrow is deciding on the terms of the escrow contract. Both parties must come together at this stage to organize the aspects of escrow, including appointing an escrow agent and their duties, identifying sources of capital, and various other terms and conditions.

This is usually quite a long, complex process with various representatives present for both parties.

2. Appointing an Escrow Agent

There are no legal requirements when it comes to appointing an escrow agent – both parties must simply agree on a well qualified escrow agent.

3. Entering the Escrow Transaction

The next step of commercial escrow is entering the transaction. The escrow agent begins this process, providing that all necessary documents are in order.

Before escrow officially opens, it’s important to get appropriate details including the total cost for sale, property address, policy liability amounts, the buyer and sell, along with contact details for professional representation (e.g. attorney, estate agent, lender etc.)

4. Signing Authority

Because of the complex nature of commercial real estate, the transaction usually occurs between legal entities (e.g. an LLC or LLP) rather than single parties, which helps to reduce costs and limit liabilities.

There can even be several legal entities created for owning the commercial property, and each one must have an individual with a signing authority. This means that a person must have the authority to sign on behalf of the entity, so proof of signing authority must be verified during escrow.

Without verified signing authority, escrow funds cannot be released, so it’s a very important step, although the process does take some time given all the various contracts involved.

5. Title Report and Closing Documents

The final steps of commercial escrow involve accepting the final title report and providing the final closing documents. These can vary depending on the transaction, but usually involve deeds, environmental reports, zoning warranties, and anything else agreed in the escrow contract that must be finalized.

The title report is provided well in advance of closing, but the buyer does have a limited time to review it and to make any objections from the report, to which the seller has a limited response time.

Once all issues are resolved, a final title report is reviewed and accepted by both parties. After the remaining closing documents are filed and dealt with, and the transfer deed is complete, escrow funds are released, and the process is closed.

Inland Empire Escrow provides escrow services for a diverse variety of real estate transactions. With offices in Chino CA and San Bernardino CA, we quickly and professionally service all the surrounding cities such as Chino Hills, Ontario, Rancho Cucamonga, Upland, Riverside, Redlands, Colton, Grand Terrace, Yucaipa, and more. To hear more about our escrow services for residential, mobile home, short sale, REO, bulk/business sale, 1031 Exchange, or agricultural escrow, contact us today at (800) 917-9387.